{"id":3391,"date":"2020-10-15T08:51:49","date_gmt":"2020-10-15T13:51:49","guid":{"rendered":"http:\/\/blogs.luc.edu\/compliance\/?p=3391"},"modified":"2020-10-15T08:51:49","modified_gmt":"2020-10-15T13:51:49","slug":"how-proxy-access-for-shareholders-can-hold-corporations-accountable","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=3391","title":{"rendered":"How Proxy Access for Shareholders Can Hold Corporations Accountable"},"content":{"rendered":"

Cora Leeuwenburg<\/em><\/span><\/p>\n

Associate Editor<\/em><\/span><\/p>\n

Loyola University of Chicago School of Law, JD 2022<\/em><\/span><\/p>\n

Proxy access is not about giving shareholder\u2019s rights, it is about checking C-suite power so that everyone wins instead of just the CEOs<\/a>. Proxy access has the potential to address some of the pressing issues with corporate power. Corporate power and influence are concentrated in the board of directors, proxy access gives shareholders the opportunity to infiltrate this exclusive \u201cinner circle\u201d of power. Shareholder access to the board can push change towards greater diversity in the boardroom and demand greater transparency and compliance.<\/span><\/p>\n

Holding boards accountable <\/strong><\/span><\/p>\n

Much of corporate compliance relies on a balance<\/a> between corporations\u2019 aims to maximize profits and complying with regulations. This balance rests on the extent to which corporations are willing to behave ethically and how well they are held accountable. This balance is overseen for the most part by committees and board oversight. Including shareholders into this equation by proxy voting for board seats would help hold corporations accountable because there would be more transparency for shareholders.<\/span><\/p>\n

The financial crisis of 2008 caused in part by the reckless risk taking of companies left unchecked, demonstrated the need for corporate compliance and accountability to minimize this risk. Shareholders have a stake in firms\u2019 performance of firms and thus must require that misconduct will not be tolerated<\/a>. Transparency is necessary to ensure this aim and proxy access gives shareholders the opportunity to be in a position to play a role in overseeing compliance.<\/span><\/p>\n

Pressuring boards towards greater diversity <\/strong><\/span><\/p>\n

Expecting corporate firms to adequately check themselves concerning compliance, ethics and diversity is unrealistic despite the profits they may be leaving on the table. Management in these situations are reluctant to accept change in these areas despite the mounting evidence that diversity and compliance are actual profitable<\/a>. As such, allowing shareholders more power in decision making, can force change in this area. With more transparency shareholders would be able to pressure the board to accept and implement changes towards greater diversity and help break down the heterogeneous board makeup that has remained omnipresent despite the costs to performance.<\/span><\/p>\n

Board diversity has been shown to increase effective corporate governance practices<\/a> and encourage innovation. Increasing diversity on boards also improves performance by appointing members with specialized and diverse experience<\/a> to address a company\u2019s weaknesses. As such, expanding the knowledge base of the board leads to better performance and governance for companies. Board diversity also provides greater oversight and compliance due to the increased likelihood that directors do not have a prior relationship with the CEO. Board diversity further helps to hold companies accountable and dismantle some of the unchecked and homogeneous power structures in the C-suite.<\/span><\/p>\n

Using Rule 14a-11 to gain a foot in the door for shareholders<\/strong><\/span><\/p>\n

Depending on CEOs and boards to act ethically when it may not be the most profitable option in the short-term puts a lot of faith in people\u2019s altruistic motives with immense power. The Dodd-Frank Act attempts to check management in these situations. With Rule 14a-11<\/a> of the Act being left unsettled, the role of shareholders and proxy voting leaves a gap in another area of compliance that must be utilized in corporate governance.<\/span><\/p>\n

Shareholders should have a voice by getting a voice in the boardroom. They can achieve this through proxy access. Rule 14a-11 of the Dodd-Frank Act aims to give shareholders the right to submit candidates for vacant board seats. The rule requires a company to include in its proxy materials the name of a person nominated by a qualified shareholder or group of shareholders for election to the board of directors.<\/span><\/p>\n

This rule is left unsettled due to the Business Roundtable v. SEC<\/em> decision<\/a> in which the court dismissed the SEC\u2019s proposal of this rule. The court\u2019s blatant dismissal and disregard of the merit of the SEC\u2019s assertion should not be the final say concerning Rule 14a-11. While the SEC failed to provide evidence of the positive economic effects of the rule, the evidence is there<\/a> and compelling. The SEC\u2019s argument failed because they didn\u2019t adequately show that these rules wouldn\u2019t have a negative financial and economic impact on companies and the economy. Recent studies have shown that proxy access actually increases shareholder wealth and improves board performance.<\/span><\/p>\n

Conclusion<\/strong><\/span><\/p>\n

Allowing shareholders to have a voice in the boardroom through proxy access has the potential to increase board diversity, improve compliance, and actually be profitable. The recent studies in support of increasing shareholder influence support this finding. Thus, the decision in the Business Roundtable case dismissing the merits of Rule 14a-11 must be challenged. Furthermore, proxy access can establish another check on corporate management helping to ensure compliance and ethicality in the halls of corporate power.<\/span><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Proxy access is not about giving shareholder\u2019s rights, it is about checking C-suite power so that everyone wins instead of just the CEOs. Proxy access has the potential to address some of the pressing issues with corporate power. Corporate power and influence are concentrated in the board of directors, proxy access gives shareholders the opportunity to infiltrate this exclusive \u201cinner circle\u201d of power. Shareholder access to the board can push change towards greater diversity in the boardroom and demand greater transparency and compliance.<\/p>\n","protected":false},"author":79,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,51],"tags":[309,310,516,517,521,642,643,1205,1654,1690,1831],"class_list":["post-3391","post","type-post","status-publish","format-standard","hentry","category-finance-banking","category-compliance-the-law","tag-board-of-directors","tag-board-of-directors-oversight","tag-corporate-accountability","tag-corporate-compliance","tag-corporate-governance","tag-dodd-frank","tag-dodd-frank-act","tag-journal-of-regulatory-compliance","tag-proxy-voting","tag-regulation","tag-shareholders"],"_links":{"self":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/3391","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/users\/79"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3391"}],"version-history":[{"count":0,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/3391\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3391"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3391"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3391"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}